If spreadbetting was legal where you are, would you do it?

[tomorton]

I'm pretty confident most of the users of ET are US residents. In the US, unlike most of the west, financial spreadbetting is illegal. Yet it represents a low cost and simple means of accessing financial markets. In the UK and many other jurisdictions it is also free from any form of taxation on the profits made by the individual client.

The downside is that you are not getting direct market access, so for example, if you bet that a stock will rise you are in no sense going to receive the shares. And whatever you bet on, you are betting on the price of that instrument as quoted by your speadbetting firm, not the exact price of the underlying.

I'm curious to understand what would traders in the US etc. where SB cannot be accessed, would you take up a SB account if you could?

 

[zdreg]

no. it has always sounded like a scam to benefit the brokerage industry, it has wide spreads and poor execution. the UK should get rid of the stamp tax of .005 and allow traders to invest/ trade like in the US.

 

[IAlwaysWin]

Absolutely not! If the brokerage can set its own prices that aren't underlying then I completely understand why spread betting is illegal. It has that classic scam smell permeating from it.

 

[zdreg]

in terms of manipulation,spread betting houses operate the same way chop houses act,

 

[beerntrading]

I take it the house is the counter party?

I wouldn't because of the lack of physical delivery and apparent clearing mechanisms to limit loss if a counter party collapses. The lack of centralized liquidity is ripe for exploitation (whereas you're likely to get filled just slightly above the 'fair' market implied price in a centralized exchange, you certain not to get this in a direct dealer situation). It seems a lot like a used car dealer in that respect--you'll get claims of integrity, but you'd fare far better in the secondary market going solo.

There's no inherent reason this is unfair, and subject to adequate regulatory oversight (which seems unlikely given the inherent conflict of interest), and assuming they're not extortionate on their spreads, I suspect I could get myself banned from one of these shops within 6 months.

Edit: also, can you take up the short to keep 'em honest?

 

[tomorton]

......Edit: also, can you take up the short to keep 'em honest?

Yes, you can short anything you can buy. There are no particular shorting restrictions.

 

[beerntrading]

Yes, you can short anything you can buy. There are no particular shorting restrictions.

I mean short the spread...not buy the rights to a downward move.

Edit: I guess 'rights' isn't the right word...."not bet on" the downward move.

 

[Sig]

Absolutely not! If the brokerage can set its own prices that aren't underlying then I completely understand why spread betting is illegal. It has that classic scam smell permeating from it.

Since you can take either side of a trade and their prices have to at least approximate the underlying this isn't a real issue, i.e. if they set the price 10% higher than current market you just sell instead of buy and close out when they come back to something close to market price, hedge with a real broker and you have risk free arb!
The real problems as I see it are the counterparty risk you expose yourself to, if they fold I'm guessing you're just an ordinary creditor. And from what I understand they have wider spreads to cover their costs and make a profit. If it gets you tax free trading though that might be worth it.

 

[Handle123]

Be like stepping up to gaming table and betting on the red or black or neutral, the casino has the edge before you even place your bet, Las Vegas was built on having the edge.

 

[tomorton]

Since you can take either side of a trade and their prices have to at least approximate the underlying this isn't a real issue, i.e. if they set the price 10% higher than current market you just sell instead of buy and close out when they come back to something close to market price, hedge with a real broker and you have risk free arb!
The real problems as I see it are the counterparty risk you expose yourself to, if they fold I'm guessing you're just an ordinary creditor. And from what I understand they have wider spreads to cover their costs and make a profit. If it gets you tax free trading though that might be worth it.

SB firms based in the UK have for a long time been obliged to run the financial services compensation scheme for their clients, so they have to segregate clients' deposits from their operating funds and the client is entitled to refunded deposited capital from the scheme if the firm goes bust. They also now have to have negative equity protection under EU-driven regulations.